Commodities are products and services that customers perceive to be homogenous, and a market or industry remains commodity driven if products fail to differentiate themselves in the eyes of the consumer. A recent study by AC Nielsen ORG, places the branded FMCG retail market in India at Rs 44,000 crore and the total FMCG retail market at Rs 1,74,000 crore. Of the total, commodities constitute 83% of total retail sales but 90% of this is yet again unbranded. This poor state of India commodity market may be due to the marketer’s myopic orientation of ‘Selling’ and a perceptive socio-economic situation of market it operates in.
With the advent of globalization, an era of increased competitiveness has erupted in our day to day life. The market has reached a level of maturity where consumerism is such that the nature of purchase lends itself to choice and convenience. This environment sprouts the brand model working truly for commodity products. And big corporate in India like HLL, ITC, Nirma, Amul, Tatas have tried to leverage this situation by going for Commodity branding on a large scale.
Major facilitators of this change include the fast-growing retail infrastructure and the improved purchasing power of the Indian customer. Increasing stress on health, hygiene and quality are some other reasons for opting for branded stuff. But even with these efforts, the commodity branding in India remains more or less an urban phenomenon, and barring a few exceptions market still works on trading and selling. So if individual entrepreneurs and corporate stresses on product differentiation and branding, it could change the structure of Indian commodity in future opening new avenues forever.
In this context the paper discusses the Indian commodity market. Historically it has been organized on a local basis with “local production supplying local demand”. With the market growing to a multi-crore industry and increasingly competitive, both major and minor players feel the need to shift from a ‘Selling orientation’ to ‘Marketing orientation’. This paper highlights that “Commodity branding” is the answer and can become the potential force to change the market structure and dynamics in India. Towards this it also suggests a 5-step model to Mange Ram – our hero and representative of vast Indian unorganized commodity market, as to how he should go about commodity branding and its implementation.
Do you need an Identity for yourself?
As human beings we take great pride in being distinct, right from identifying ourselves in a crowd to naming our pet. We relate to brands that match our personality. As consumers, we can remember some brands which are familiar and one expects certain standards of quality from these brands. Thus a brand is something that one associates with assurance, consistency and sum total of satisfaction one gets out of it.
We definitely find a difference in our perception among these items of daily use. The difference is due to the sanctimonious effect of the words “Brand” and “Brand value”.
When our love for distinction is so much in accordance with nature, why is it that major India markets are still flooded by unbranded commodities? A recent AC Nielsen ORG’s estimate places the branded FMCG retail market at Rs 44,000 crore and the total FMCG retail market at Rs 1,74,000 crore. Of the total, Foods constitute 83% of total retail sales but 90% of this is yet again unbranded.
A number of reasons might have been responsible for our current scenario, as listed below
Reasons may be
* Myopic ‘Selling’ orientation by companies/individuals dealing with commodities
* Socio-Economic structure of the market it operates in and it grew in
* Fragmented markets and Unorganized market
* Uncertainty and risk due to lack of security
* Low consumer awareness
* Low quality mindedness
All these intimidating factors lead us to believe that Branding is certainly not the forte of the Indian business community to work upon.
Here lies the catch. To our surprise it is found that some Indian companies, working on the brand wave, have not only become leaders in their respective fields but have also survived against the vagaries of initiation. This has been achieved by being flexible and customer centric. Of course, trusted brands are not established overnight but are built up as a result of long-term investment in delivering what the brand promise. Amongst the top Indian brands, many started as unbranded commodities including Amul, Nirma, Tata Namak, and Haldiram’s to name a few.
With the advent of globalization, an era of increased competitiveness has erupted into our day to day life. The market has reached a level of maturity where consumerism is such that the nature of purchase lends itself to choice and convenience. This environment sprouts the brand model working truly for commodity products.
Change Change Change!!!
Commodity branding is changing every moment in the way consumers shop for products. This has been noticed in the FMCG sector and made it flexible enough to balance the dynamics. Seizing the opportunity of huge market potential and more informed consumer, they started branding commodities.
Let us consider a few examples. Amul started with dairy products, HLL with edible oil (Dalda, Dhara), ITC with Delite & Aim matchsticks, Tata with salt, Titan with jewellery (Tanishq), Nirma did with washing powder and Gujarat Ambuja with Cement. These companies are now branding spices, jaggery , farm products, other agricultural products, sugar, alphanso mangoes, apples and others to name a few.
One of the major facilitators of this change is the fast-growing retailing infrastructure and the improved purchasing power of the Indian customer. Increasing stress on health, hygiene and quality are some other reasons for opting for branded products. Industry players believe that there is a marked shift in the market today. Organized retailing has been one great enabler. Though there is a premium on branded commodities, industry experts believe that the overall discount offered by retailers ensures that the customers get a good bargain at the end of the day. There is a greater emphasis on health and quality.
Can our Mange Ram do it?
Well Mange Ram (Our local hero – poultry farm owner) need not worry about the huge amount of investments foreign companies pour in advertisements and promotion campaigns. He is lucky enough to be in a product yet to be harnessed by them. So far, success in pushing sales of branded products in categories like edible oils, ghee, coffee and namkeen has been mixed. Sales of packaged atta have risen from 3.8 lakh tonne to 5.5 lakh tonne over the past three years while the off take of branded salt is yet to show any major jump. A noticeable development is that regional players have also emerged as strong players in these categories with brands such as Gold Winner and Gemini. This should be encouraging for our Mange Ram along with the fact that the increase in commodity retailing by FMCG has till date remained just an urban phenomenon.
But as commodity markets have become over-saturated, it has resulted in price decreases. Mange Ram’s competitor, neighborhood village’s Ranbir Singh, has already purchased a mini van for quicker transport to Baniye ki Dukaan. Another competitor, Shambu Nath claims of richer feed for increased productivity. In such a fast paced world, how will our Mange Ram survive?
First the challenges-
Producers all over now recognize that their future economic prosperity demands a switch from commodity trading to offering differentiated goods and services. One of the fundamental methods of differentiation involves branding. The word brand in itself sends shivers down Manager’s spine.
In such case how does our Mange Ram go about it?
* How much to invest
* How to create brand
* How to tackle competition
* What about the implications of wrong decisions?
1. Identify a niche for yourself
Commodity marketers who know ‘who will pay for differentiation’, ‘how much can be invested in the differentiation process’ and ‘what benefits are of value to their customers’ can begin to build a brand. Those who instead apply a shotgun approach will likely run out of money before they see results. Successful commodity marketers must start by recognizing that no market is truly homogeneous.
* Who will pay
Developing the market goes well beyond traditional segmentation. It is a deliberate process to find those customers who need, appreciate and will pay for differentiation. In place of the traditional psychographic or demographic approaches, the first step here is to conduct a disciplined behavioral segmentation of the market by examining the actual purchase.
Select customers who will pay premium for offerings that deliver true value in terms of process enhancements, cost reduction or benefits to them. We all know that everyone stands for something, whether negative or positive. Maybe they don’t know or don’t care, but yes, they have a brand “identity.”
How much will he willingly pay
A large segment of the market, generally ranging from 30 to 45 percent, places a higher emphasis on pure price, but is occasionally willing to entertain the notion of selective relationships involving certain products or services. Customers in this segment have some degree of interest in partnering although they shy away from long-term commitments. Because they are concerned with delivered cost, it is possible on occasion to interest them in opportunities to reduce network costs, including transportation, delivery and warehousing. Managers, rather than fixating exclusively on cost, are primarily concerned about the potential to avoid supply interruptions.
Commodity suppliers are accustomed to charging a wide range of prices; the rational basis underlying those price variations is not always evident. Haphazard pricing practices will not support a long-term branding strategy. Marketing branded commodities involves a set of basic pricing principles discipline and differentiation. We have to be aware of the true cost of differentiation. Effective branding requires an accurate calculation of the true cost of initiating, delivering and supporting the offering. Moreover, we need to understand the true value of the offering to prevent differentiation to be unbundled. One should always be prepared for trade-offs between volume and price. That signifies deliberately surrendering market share on occasion when the tide is running the wrong way, then moving aggressively to regain share when conditions are right. It requires a dynamic, day-to-day approach.
2. Create brand
Brand is already there. It lies in the expertise, in the conduct with customer; in the product and its qualities; in the name, the logo and the marketing. It is omnipresent in the attitudes and the cultures in every little thing done by the organization. It is just a question of finding its essence and letting that guide future decisions.
A successful brand has a clearly defined, appealing offering that sets it apart from its competitors.
3. Reach out and Communicate the brand with the customer
Penetration, access, distribution and coverage of wide customer base are the key to success of any brand. A brand is of no use if it fails to generate revenues to the owner. In India where market is unorganized and fragmented, penetration to the consumer is all the more important.
Here it is worthwhile here to mention the case of ITC’s E-Choupal which shifts focus from selling commodities to marketing brands. We all know that agriculture is very vital to Indian economy. It accounts for 23% of GDP, feeds a billion people, and employs 66% of our workforce.
The agriculture system has traditionally been unfair to primary producers. Farmers have only an approximate idea of price trends and have to accept the price offered to them at mandis. As a result, traders exploit both farmers and buyers through practices that sustain system-wide inefficiencies. ITC has initiated an e-Choupal effort that places computers with Internet access in rural farming villages which serves both a social gathering place for exchange of information and an e-commerce hub.
What began as an effort to re-engineer the procurement process for soy, tobacco, wheat, shrimp, and other cropping systems in rural India has created a highly profitable distribution and product design channel for the company-an e-commerce platform that is also a low-cost fulfillment system focused on the needs of rural India. The e-Choupal system has also catalyzed rural transformation that is helping to alleviate rural isolation, create more transparency for farmers, and improve their productivity and incomes.
Here again the key to success was found to be penetration in the market and access to the farmers.
4. Differentiate yourself
There are always ways to differentiate, through both how you add value and how you deliver it. Value is created in commodity by improving the consistency of offering, making them more convenient or aggressively customizing them to customer’s requirement. This value can be delivered either through the product itself or through service enhancement.
* Quality and Consistency:
Through quality mindedness which is visible in your products and approach products can be differentiated. This further leads to reliability, which fosters from accordance between different segments of your value chain.
* Knowledge-based Applications
The most intense form of differentiation also requires the deepest involvement in the customer’s operations. Exhaustive knowledge of the customer’s processes can be used to provide substantial value and pave the way for long-term partnering relationships.
The supplier must have the business systems and processes required to deliver the marketed offering
* Distribute real value
when commodity buyers pay a premium for value, it can’t be skin deep. The value has to be real and tangible, because they will constantly measure and reevaluate it. If the customer paid for the highest quality product or the highest level of service, then that is what the customer has to get. At the same time, business systems must enforce internal discipline to insure that buyers of the most basic commodities are not over-served.
* Customer perception for premium
Well, we have to begin from somewhere. Before taking concrete steps, we have to visualize our own core competencies, things within our product that may stand us apart from the crowd. The dilemma lies in predicting whether the extra offerings ( which will come as an added price due to value addition, decision support tools, targeted communications, and the tracking and learning capabilities) will ensure premiums on a long term basis.
* Customer’s experience
Changes in the business capabilities are not restricted to production and logistics, but are even more important on the “soft side” – customer management. Employing a traditional sales force to market a branded commodity is the epitome of the Pogo Principle: “We have met the enemy and he is us.”
Mange Ram may be over joyed and filled with enthusiasm after listening to this seeming panacea called ‘Branding’ but after landing his feet back on earth, he may start pondering whether his added value will pay him added dividends considering the type, choice and attitude of his customers? So what if he invests in certain vaccines and medicines which lead to an egg with a better shelf life, does not smell foul and has higher protein content. Has he created a brand? Should he go the corporate way of branding and advertising? Will that pay off?
Answer is – He needs to be rational. Know his customer and their needs. What is the value of their need? How desperately do they need these services? Based on this he should plan the value addition to his product or services. If he can capture the emotion of his customer, he has obviously created an ideal branding opportunity. Once he is sure of quality and consistency, he can then develop upon the brand. If market provides positive indications he should not wait to expand. Then he can become the new face and bring in the change element of Dynamic Indian Commodity market.